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Gollier, Christian
(2014)
Gamma discounters are short-termist.
TSE Working Paper, n. 14-499, Toulouse
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Abstract
Weitzman (1998, 2001) proposed a simple “gamma discounting” method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates. This rule which justifies using a smaller discount rate for longer maturities is now used for long-term policy evaluations in the UK, France, Norway, and potentially in the US. But we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion, the expected net present value rule. Considering a standard Lucas tree economy, we characterize the term structure from the joint distribution of future spot interest rates and future consumption levels. When future growth rates are serially correlated, efficient discount rates today are decreasing with maturity, and the gamma discounting rule yields discount rates that are larger than the efficient ones.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | June 2014 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Decreasing discount rates, term structure, uncertain growth, Weitzman-Gollier puzzle |
| JEL Classification: | E43 - Determination of Interest Rates; Term Structure of Interest Rates G11 - Portfolio Choice; Investment Decisions G12 - Asset Pricing; Trading volume; Bond Interest Rates Q54 - Climate; Natural Disasters |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 09 Jul 2014 17:45 |
| Last Modified: | 02 Apr 2021 15:48 |
| OAI Identifier: | oai:tse-fr.eu:28256 |
| URI: | https://publications.ut-capitole.fr/id/eprint/15940 |
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